Desperate families are increasingly taking out personal loans to boost their house deposits and cover Christmas bills.

Yet a proposed new law to protect people from cowboy lenders is unlikely to take full effect until at least 2016 - more than five years since it was first mooted by the Government.

The Credit Contracts and Consumer Finance Amendement Bill is aimed at cracking down on loan sharks, including making it illegal to lend to people who can't afford repayments.

However, even once made into law, the finance industry has another 18 months to develop a responsible lending code.

The delay has led to calls for the Government to act more quickly to stop loan sharks preying on first-home buyers and cash-strapped families.

"People have already been thinking about it," said Raewyn Fox from the NZ Federation of Family Budget Services. "Developing it in six months is quite feasible. If lending is responsible, affordable and well thought out in the first place, it is not going to go wrong."

The Sunday Star-Times reported on July 21 last year that the Reserve Bank's new loan-to-value ratio lending restrictions would force many first-home buyers into the arms of loan sharks.

Under the new law change, banks require more people to have a 20 per cent deposit as opposed to the heady days when a deposit of 5 per cent was enough to gain a mortgage.

Since being introduced, the number of people inquiring about personal loans had jumped 18 per cent, according to Veda, Australasia's largest credit reference agency.

Generation Y, those aged 18 to 38, were the biggest group needing help, pushing up personal loan demand by 20 per cent.

"Who are these borrowers actually dealing with. Are they reputable? Are people going to get themselves into trouble when interest rates go up?"

Labour's Consumer Affairs spokeswoman Carol Beaumont said while the legislation has been on the backburner, a greater number of loan sharks were preying on home buyers and struggling families. The reform bill had been "abysmally handled" with more people getting into debt every day it was delayed, she said.

"The level of debt is higher. More people are hooked into high-interest loans."

The Government had a lot to answer for, she added.

"I don't understand why [the Bill] wasn't a priority. This is about ordinary New Zealanders. At this rate it won't be in place until the next election."